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What Is a 403(b) Plan?

A 403(b) plan is a special tax-deferred retirement savings plan that is often referred to as a tax-sheltered annuity, a tax-deferred annuity, or a 403(b) annuity. It is similar to a 401(k), but only the employees of public school systems and 501(c)(3) organizations are eligible to participate in 403(b) plans.

Employees can fund their accounts with pre-tax contributions, and employers can also make contributions to employee accounts. Employer contributions can be fixed or discretionary. Eligible employees may elect to defer up to 100% of their salaries, as long as the amount does not exceed $19,500 in 2020 (up from $19,000 in 2019). A special “catch-up” contribution provision enables those who are 50 and older to save an additional $6,500 (up from $6,000 in 2019). Total combined employer and employee contributions cannot exceed $57,000 in 2020 (up from $56,000 in 2019). Contribution limits are indexed annually for inflation.

Employees have the option of choosing the types of investments utilized in their funds. A 403(b) can be an annuity contract, a custodial account, or a retirement income account. It is a good idea to do a little research before selecting how you would like to invest your funds. Your employer can provide you with a list of the investments that are available.

Distributions from 403(b) plans are taxed as ordinary income. Withdrawals made before age 59½ may be subject to a 10% federal income tax penalty unless a qualifying event occurs, such as death or disability.

Generally, once you reach age 72, you must begin taking annual required minimum distributions. You can receive regular periodic distributions on a schedule that is calculated based on your life expectancy, or you can collect your entire investment as a lump sum.

Participating in a 403(b) plan may be a good way to save for retirement. Contact your employer to find out what type of plan is offered and how you can take advantage of this retirement funding vehicle.

IMPORTANT CONSUMER INFORMATIOn:

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.

* Securities offered through Woodbury Financial Services, Inc., (WFS), memberFINRA/SIPC. WFS is separately owned and other entities and/or marketing names, products or services referenced here are independent of WFS. Insurance services are offered through Financial Strategies of Wisconsin, LLC, which is not affiliated with Woodbury Financial Services. Neither Woodbury Financial Services, Inc., nor its registered representatives or employees, provide tax or legal advice. As with all matters of a tax or legal nature, you should consult with your tax or legal counsel for advice. This website contains content and links to third-party resources. Woodbury Financial Services, Inc. or its affiliates do not endorse or accept responsibility of third-party content.

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